Mum and dad investors, including many retirees, could end up helping to pay for Tony Abbott's paid parental leave scheme. Costings released by the Parliamentary Budget Office reveal the decision not to allow shareholders to claim franking credits will save a Coalition Government $1.6 billion each year once the leave scheme is fully up and running, as Matt O'Neil reports.

The Shareholders Association says they are ‘flabbergasted’ with the Coalition’s decision not to allow shareholders to claim franking credits in order to fund their paid parental leave scheme.

‘This is a $1.6 billion cash hit... anyone who receives a dividend credit from one of the top 1000 listed companies will no longer receive the credit at 30c in the dollar, they’ll only get 28.5c in the dollar,’ said the organisation’s spokesman Stephen Mayne.

It’s discriminatory against retail investors, it’s a material hit and it’s unfair and a very surprising thing to be coming from the Coalition, which is normally so much better for investors.

Stephen Mayne, Shareholders Association

He described the policy as ‘discriminatory’ and said the ‘six million Australians who own shares directly,’ including many retirees, will foot the bill to pay for the scheme.

‘A lot of Australians choose to own their shares directly, [and] when they do their tax returns they calculate their franking credits. [The shareholders association] thinks this is a mistake, and we think the [Coalition] should change its position and find its funding from elsewhere.’

Franking credit is a type of tax credit that is passed on to investors when they receive dividends from companies paying the PPL levy.

Mayne thinks it’s unusual for a government not to allow franking credits.

‘I’ve never seen a differential company tax rate being introduced where the top 1000 public companies—anyone who makes a profit of more than $5 million a year—[receive a rate that] only affects them, and never before has there been a differential tax rate on different sizes of company... certainly going all the way through to franking credits.’

The spokesman added that he was surprised the Coalition would produce a policy that would hit investors so hard.

‘It’s discriminatory against retail investors, it’s a material hit and it’s unfair and a very surprising thing to be coming from the Coalition, which is normally so much better for investors.’

Frank Drenth from the Corporate Tax Association is also troubled by the plan, which he labelled ‘not well thought out.’

Drenth has called on the Coalition to ‘think twice’ before compromising an ‘effective integrity measure’ for big businesses.

‘Since 1987 company taxes have flowed through to individual shareholders, but it’s also acted as the most effective incentive for listed companies to pay tax... I’ve seen companies pay more tax than they need to just to get franking credits to their shareholders,’ he said.